Collective approach to buying a life cover

Updated: Mar 21 2014, 09:12am hrs
When we talk about life insurance, we generally talk about the products sold to individuals. The channel partners here are interested in selling insurance by assessing the specific financial needs of the individual. The primary focus is on helping the individual reach his financial goals through a combination of various life insurance products. Group insurance is another way of buying life insurance, and at more favourable terms at times.

here, the insurer takes a whole group as the underwriting unit. The group can be an employer-employee group, a group of professionals such as doctors, lawyers or professors, or a group of people availing loan from micro-finance institutions. The insurer is not bothered about the health and habits of the individual members.

The insurer requires a group of at least 20 people, actively working on the day of joining the scheme. The members must have joined the group for purposes other than obtaining a low-cost group insurance. For employer-employee groups, an employee should not be on leave on medical grounds on the date of commencement of the scheme. In the beginning, at least 75% of the existing members must join the group, and the scheme must be made mandatory for all new members. So, the insurer expects to get a mix of lives whose average health condition is satisfactory.

There are some special advantages of group schemes. Insurable interest neednt be proved by individual members here. Group insurance is ideal for those who dont have much insurance individually because of advanced age, pre-existing diseases or adverse family history. As administrative expenses are quite low, group insurance premiums are also low.

The sum assured depends on the groups size and nature. In most cases, a uniform cover is given to all members. Where various cadres of employees exist, graded covers are provided. Again, insurance cover can be a multiple of the annual salary. The premium payable by an employee can depend on his designation/basic pay. There is a free cover limit in respect of every scheme it is the sum assured up to which a cover can be granted without any medical requirement. For some employer-employee groups, the free cover can be as high as R50 lakh.

It is not just insurance cover that is available under group insurance schemes. Most insurers have group savings-linked insurance schemes that offer a cover as well as savings opportunities. A portion of the premium is used to cover life risk and the balance continues to earn interest. The contributions made by the employer are considered business expenses while those by employees are eligible for tax relief under Section 80C.

There are other attractive group insurance schemes like Group Gratuity Scheme, Group Superannuation Scheme and Group Leave Encashment Scheme. As there is an insurance element in all these, the rights of employees are always protected, and they dont depend on the employers fortunes. Under all group plans, the members can opt for riders such as critical illness, accident benefit and permanent disablement. These are available at moderate costs. Another benefit is that an individual member can ask for conversion to an individual policy.

The group insurance business contributed 42% of new business premiums for life insurers in 2012-13. While there was de-growth in conventional business in 2012-13, group insurance business recorded growth of over 15%. Insurers covered the lives of 6.57 crore people in that period through group insurance schemes while they managed to sell 4.41 crore individual policies.

Nirjhar Majumdar

The writer is research associate, zonal training centre, Kolkata, LIC of India.

Views are personal